Saturday, November 15, 2014

Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, has been consistent in forewarning about the growing abundance of bubbles in every element of the stock market and global economy. Where are the bubbles? According to Faber, everywhere.

Speaking in an interview with CNBC on Friday, the contrarian investor warned “we have a bubble in everything, everywhere,” soon after the Dow Jones and the S&P 500 ended the day’s trading session at new all-time highs.

Faber, who has been a staunch critic of the so-called economic recovery in the United States and Europe, believes the Federal Reserve’s intense quantitative easing program and near-zero interest rates have inflated stock prices. If the stock market decreases then it could be because of an interest rate hike “not engineered by the Fed” but rather a spike in bond yields.

In addition, the markets will experience a shock once another recession hits the global economy.

“The big surprise will be that the global economy slows down and goes into recession. And that will shock markets,” said Faber, who added that there would be dire straits and a lack of confidence in the economies of the world if governments and central banks can’t recovery even with all of the money pumping by the Fed.

Right now, Faber is more concerned about the rising cost of living for American consumers: “Their cost of living have gone up more than the salary increases, so they’re getting squeezed. So that’s why retailing is not doing particularly well.”

Others worry about bubble environment

Contrarian investors like Faber aren’t the only ones sounding the alarm when it comes to bubbles. There have been a number of mainstream, establishment economists and entities discussing the various bubbles popping up all over the markets.

We reported last week that a group of Deutsche Bank strategists wrote that the international government bond market is facing a bubble because it is already experiencing quite a bit of frothiness. The concern is that the bond market has nowhere else to go to because it’s already in the hands of governments and central banks.

“The worry is that there is nowhere left for this bubble to go given that it is now in the hands of the lenders of last resort (governments and central banks with regulators ensuring other large captive buyers),” the economists wrote. “Although we think this bubble needs to be maintained to ensure the solvency of the current financial system, the best case scenario is that it slowly pops over time via negative real returns for bondholders. The worst-case scenario being future restructuring.”

Fed Chair Janet Yellen, meanwhile, concurred this past summer that stocks are in a bubble, but noted that the U.S. central bank wouldn’t raise rates in order to burst them. Yellen argued that it should be up to financial regulatory bodies to bring about stability to markets rather than monetary policy, though it’s the Fed’s artificial rates and money printing that’s producing bubbles.

In June, Wilbur Ross, CEO of WL Ross, averred that the sovereign debt market bubble will pop within the next two years, citing the 10-year U.S. Treasury yields hitting a record low in 2012.

“I’ve felt for some time that the ultimate bubble, when we look back a few years from now, is going to be sovereign debt, both U.S. andother, because it’s way below any kind of reversion to the mean of interest rates,” Ross told CNBC. “If you look at where the U.S. 10-year had averaged over the 10 preceding years, it’s around 4 percent. If it reverts back to that level at some point, there will be terrible losses in the long-term Treasury market, and those will probably be accentuated in other areas of fixed income.”

Thursday, November 13, 2014

Longtime bear Marc Faber is known for his contrarian investment views, which is how he earned the name “Dr. Doom.” Over the last few weeks, Faber has been continuously predicting a “correction” in equity markets of over 30% when talking to financial news channels including CNBC and BNN. Although Faber has also built a reputation as ‘the boy who cried wolf’ in the eyes of many market enthusiasts, the rate at which equity markets are currently selling off makes me wonder if there is some truth in his bold statements.

The S&P/TSX Index is at multi-month lows after losing about 11% in six weeks. This comes as our neighbours south of the border are witnessing their markets wipe out all their gains for 2014.

It does seem scary. But should investors really be afraid? I continue to think not. I’ve said it before, and I’ll say it again: such a selloff in the markets is rather normal, and might I add, healthy. It’s been a while since we’ve seen the markets erase some gains and many traders expected such movements. Add to that seasonal volatility, ebola scares, slowing growth in Japan, and oil price declines and its only natural for investors to get the jitters.

But while Faber sees gloom and doom, Warren Buffett’s motto is to “be fearful when others are greedy and greedy when others are fearful.” And that’s a concept I agree with strongly. After all, it’s hard to disagree with one of the most legendary investors of our time.

Monday, November 10, 2014

“Well basically we have these student demonstrations. In my view it is less about democracy and more about the chief executive of Hong Kong being very unpopular with young people and also with other people in Hong Kong. And it is also a social background in the sense that Hong Kong became very prosperous between 1950 and about 10 years ago. Years in which GDP per capita increased enormously and over the last 10-15 years real in other words inflation adjusted per capita incomes have been declining…I believe the outcome will be some sort of compromise where by the chief executive would probably resign.”

Friday, November 7, 2014

"As long as governments intervene into the private sector, the free market, and as you know, the U.S. is not yet that bad. But say from 1930 government spending as a percent of the economy has gone from 7.8 percent to now over 41 percent. It compares favorably with France which is now at 57 percent, but the bigger the government is, the less dynamic the economy can be and the less gross there will be. But the governments don’t see that way.”

Wednesday, November 5, 2014

“Well I think it’s quite funny because everywhere you go, up to a little while ago, there was great optimism about this recovering the global economy when in fact Europe is not recovering and in fact it is slowing down. In Asia and in other emerging economies we have a very meaningful slowdown in economic activity. I wouldn’t call all the emerging economies being in recession yet, but it’s just very little growth in present time in real terms and in some cases it has been a downturn, a meaningful downturn, like say in retail sales in Hong Kong or in Singapore…so I don’t believe that the global economy is healing, all that was in the context of massive interventions with fiscal and monetary measures by the authorizes.”

Saturday, November 1, 2014

Michael Covel speaks with Marc Faber, Editor and Publisher of "The Gloom, Boom & Doom Report", in person on the podcast (recorded in Chiang Mai, Thailand at Faber's office). Covel and Faber discuss the current state of Russia; changing geopolitics; Faber’s experience living through the Cold War; the difference between Crimea’s value to the west and its value to Russia; why the Russians perceived the uprising in Kiev to be financed by western power; China’s reaction to the situation in Crimea; the construction boom in China; the difficulty of forecasting China’s geopolitical changes; positive and negative valuations of the market, and finding investments to be “cheap” or “expensive”; Faber’s advice to young people following his path today in the face of money printing and bailouts; what can be done about wealth inequality; making a living in the face of instant communication and globalization; central banks’ role in wealth inequality; why money printing leads to bubbles; Warren Buffett’s involvement with the bailouts, and how his government connections have helped his investments; and how governments are assimilating everything; “Capitalism and Freedom” by Milton Friedman; and the cost of large government in the US and elsewhere. Plus, included are Faber's views on relationships, contrasting the West and Asia along with Facebook fame (not related to investing, but wise and entertaining words).